Question

Assume that you are deciding whether or not to acquire a four-year university degree in economics. Your only consideration at this moment is the degree as an investment for yourself. The direct costs per year are the tuition fees of $1,500 and purchases of books and other course material of $400. The government pays the university an amount equal to four times the amount of tuition fees to cover the cost per student. If you do not go to university, you will earn $20,000 per year as an acrobat during the first four years with a salary increase of 5% from the fifth year on. With a university degree, however, you know that you can earn $30,000 per year as a circus manager for the first four years after graduation with an annual increase of 6% thereafter. Because of the nature of the chosen occupation, your time horizon for the investment decision is exactly 10 years after graduating from university : that is, if the investment decision is to be worthwhile it must be so within a 10 year period. The market rate of interest rate is 5%. Would you make the investment in the degree?

Use either the present value or internal rate of return approach for your calculation

(Please provide detail step by step explanation to get to the right answer in the form of word)

Answer 1